Tuesday, February 4, 2014

Stops, Waves, And Levels

Nearly 43 points shaved off the S&P in one day -- an excellent example as to why stops are important, mental or mechanical. I use mental ones, often to the penny, and I don't mess with them. Yesterday was a great reminder why they are vital.

Price action is slowly leaning toward changing the market trend from bull to bear, but it will take some more damage to do that. The wave pattern has been ambiguous for so long that I've felt it important to align with the trend until proven wrong.

It's not easy seeing a decline of this magnitude without having much on while being a structural bear other than a few VIX calls that I've since sold. But if the market truly has entered a bear phase, there will be plenty of time to be aggressive.

Until 1709.67 breaks, I'm still looking for ways to position for higher prices. This is my own level; others may disagree with it, but it's the best I can find according to the clearest waves as I see them. Anything prior to the May 2013 high still looks odd to me, just as it did in real-time. Only since the June 2013 low do I see a clear count, and that is what I'm currently trading.

Futures went on a wild ride last night in the overnight session which looks to have created a corrective (rather than impulsive) bounce higher. With the 150-day moving average at 1736 and the 200-day moving average near 1707, there could still be lower prices to come, but buyers should start to emerge.

Notice there is a level of Fibonacci confluence in the 1720s. This is my target for a potential bottom. Getting below 1709.67 would flip me to an outright bear once an epic bounce ensued (wouldn't want to start selling it right away).

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